Document and Entity Information	3 Months Ended
Document and Entity Information	Mar. 31, 2010	Apr. 30, 2010
Document Type	10-Q
Amendment Flag	false
Document Period End Date	Mar. 31, 2010
Document Fiscal Year Focus	2010
Document Fiscal Period Focus	Q1
Trading Symbol	YHOO
Entity Registrant Name	YAHOO INC
Entity Central Index Key	0001011006
Current Fiscal Year End Date	--12-31
Entity Filer Category	Large Accelerated Filer
Entity Common Stock, Shares Outstanding		1,385,062,910

Condensed Consolidated Statements of Income (USD $) In Thousands, except Per Share data, unless otherwise specified	3 Months Ended
	Mar. 31, 2010	Mar. 31, 2009
Revenues	$ 1,596,960	$ 1,580,042
Cost of revenues	706,382	700,737
Gross profit	890,578	879,305
Operating expenses:
Sales and marketing	313,538	321,112
Product development	266,077	306,043
General and administrative	110,428	136,997
Amortization of intangibles	8,102	9,667
Restructuring charges, net	4,412	4,801
Total operating expenses	702,557	778,620
Income from operations	188,021	100,685
Other income, net	86,328	4,960
Income before income taxes and earnings in equity interests	274,349	105,645
Provision for income taxes	(49,444)	(35,884)
Earnings in equity interests	87,374	48,934
Net income	312,279	118,695
Net income attributable to noncontrolling interests	(2,088)	(1,137)
Net income attributable to Yahoo! Inc.	310,191	117,558
Net income attributable to Yahoo! Inc. common stockholders per share - basic	$ 0.22	$ 0.08
Net income attributable to Yahoo! Inc. common stockholders per share - diluted	$ 0.22	$ 0.08
Shares used in per share calculation - basic	1,398,308	1,391,526
Shares used in per share calculation - diluted	1,413,432	1,406,510
Stock-based compensation expense by function:
Cost of revenues	1,011	3,579
Sales and marketing	13,678	49,897
Product development	32,373	54,278
General and administrative	$ 13,721	$ 18,966

Condensed Consolidated Balance Sheets (USD $) In Thousands, unless otherwise specified	3 Months Ended	12 Months Ended
	Mar. 31, 2010	Dec. 31, 2009
Current assets:
Cash and cash equivalents	$ 1,330,632	$ 1,275,430
Short-term marketable debt securities	1,911,423	2,015,655
Accounts receivable, net	900,253	1,003,362
Prepaid expenses and other current assets	428,156	300,325
Total current assets	4,570,464	4,594,772
Long-term marketable debt securities	1,001,654	1,226,919
Property and equipment, net	1,469,984	1,426,862
Goodwill	3,600,234	3,640,373
Intangible assets, net	288,294	355,883
Other long-term assets	135,067	194,933
Investments in equity interests	3,583,129	3,496,288
Total assets	14,648,826	14,936,030
Current liabilities:
Accounts payable	113,798	136,769
Accrued expenses and other current liabilities	1,049,481	1,169,815
Deferred revenue	351,795	411,144
Total current liabilities	1,515,074	1,717,728
Long-term deferred revenue	101,773	122,550
Capital lease and other long-term liabilities	135,797	83,021
Deferred and other long-term tax liabilities, net	448,237	494,095
Total liabilities	2,200,881	2,417,394
Commitments and contingencies (Note 10)
Yahoo! Inc. stockholders' equity:
Common stock, $0.001 par value; 5,000,000 shares authorized; 1,413,718 shares issued and 1,406,075 shares outstanding as of December 31, 2009 and 1,417,994 shares issued and 1,385,563 shares outstanding as of March 31, 2010	1,415	1,410
Additional paid-in capital	10,700,847	10,640,367
Treasury stock at cost, 7,643 shares as of December 31, 2009 and 32,431 shares as of March 31, 2010	(502,602)	(117,331)
Retained earnings	1,909,829	1,599,638
Accumulated other comprehensive income	311,052	369,236
Total Yahoo! Inc. stockholders' equity	12,420,541	12,493,320
Noncontrolling interests	27,404	25,316
Total equity	12,447,945	12,518,636
Total liabilities and equity	$ 14,648,826	$ 14,936,030

Condensed Consolidated Balance Sheets (Parenthetical) (USD $) In Thousands, except Per Share data, unless otherwise specified	Mar. 31, 2010	Dec. 31, 2009
Common stock, par value	$ 0.001	$ 0.001
Common stock, shares authorized	5,000,000	5,000,000
Common stock, shares issued	1,417,994	1,413,718
Common stock, shares outstanding	1,385,563	1,406,075
Treasury stock at cost, shares	32,431	7,643

Condensed Consolidated Statements of Cash Flows (USD $) In Thousands, unless otherwise specified	3 Months Ended
	Mar. 31, 2010	Mar. 31, 2009
CASH FLOWS FROM OPERATING ACTIVITIES:
Net income	$ 312,279	$ 118,695
Adjustments to reconcile net income to net cash provided by operating activities:
Depreciation	129,683	134,866
Amortization of intangible assets	35,563	46,707
Stock-based compensation expense, net	60,783	126,720
Non-cash restructuring charges		(558)
Tax benefits from stock-based awards	12,864	(2,705)
Excess tax benefits from stock-based awards	(32,889)	(22,127)
Deferred income taxes	28,687	5,826
Earnings in equity interests	(87,374)	(48,934)
Gain from sales of investments, assets, and other, net	(51,021)	(3,141)
Changes in assets and liabilities, net of effects of acquisitions:
Accounts receivable, net	89,192	136,535
Prepaid expenses and other	(127,120)	2,267
Accounts payable	(22,553)	(29,689)
Accrued expenses and other liabilities	(150,027)	(170,480)
Deferred revenue	(54,470)	(31,633)
Net cash provided by operating activities	143,597	262,349
CASH FLOWS FROM INVESTING ACTIVITIES:
Acquisition of property and equipment, net	(112,541)	(70,481)
Purchases of marketable debt securities	(682,397)	(1,241,194)
Proceeds from sales of marketable debt securities	88,845	55,018
Proceeds from maturities of marketable debt securities	905,903	1,045,691
Purchases of intangible assets	(5,464)	(5,365)
Proceeds from the sale of a divested business	100,000
Net cash (used in) provided by investing activities	294,346	(216,331)
CASH FLOWS FROM FINANCING ACTIVITIES:
Proceeds from issuance of common stock, net	12,877	3,932
Repayments of capital lease obligations	(363)
Repurchases of common stock	(385,171)
Excess tax benefits from stock-based awards	32,889	22,127
Tax withholdings related to net share settlements of restricted stock awards and restricted stock units	(30,086)	(10,339)
Net cash provided by (used in) financing activities	(369,854)	15,720
Effect of exchange rate changes on cash and cash equivalents	(12,887)	(35,525)
Net change in cash and cash equivalents	55,202	26,213
Cash and cash equivalents at beginning of period	1,275,430	2,292,296
Cash and cash equivalents at end of period	$ 1,330,632	$ 2,318,509

THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

3 Months Ended

Mar. 31, 2010

THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

Note 1 THE COMPANY AND SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES

The Company. Yahoo! Inc., together with its consolidated subsidiaries (“Yahoo!” or the “Company”), attracts hundreds of millions of users every month through its innovative technology and engaging content and services, making it one of the most trafficked Internet destinations and a world class online media company. Yahoo!’s vision is to be the center of people’s online lives by delivering personally relevant, meaningful Internet experiences. Together with the Company’s owned and operated online properties and services (“Yahoo! Properties” or “Owned and Operated sites”), Yahoo! also provides its advertising offerings and access to Internet users beyond Yahoo! through its distribution network of third-party entities (“Affiliates”), who have integrated the Company’s advertising offerings into their Websites, referred to as Affiliate sites, or their other offerings. The Company generates revenues by providing marketing services to advertisers across a majority of Yahoo! Properties and Affiliate sites. Additionally, although many of the services the Company provides to users are free, Yahoo! does charge fees for a range of premium services.

Basis of Presentation. The condensed consolidated financial statements include the accounts of Yahoo! Inc. and its majority-owned or otherwise controlled subsidiaries. All significant intercompany accounts and transactions have been eliminated. Investments in entities in which the Company can exercise significant influence, but does not own a majority equity interest or otherwise control, are accounted for using the equity method and are included as investments in equity interests on the condensed consolidated balance sheets. The Company has included the results of operations of acquired companies from the closing date of the acquisition. Certain prior period amounts have been reclassified to conform to the current period presentation.

The accompanying unaudited condensed consolidated interim financial statements reflect all adjustments, consisting of only normal recurring items, which, in the opinion of management, are necessary for a fair statement of the results of operations for the periods shown. The results of operations for such periods are not necessarily indicative of the results expected for the full year or for any future periods.

The preparation of consolidated financial statements in conformity with generally accepted accounting principles (“GAAP”) in the United States (“U.S.”) requires management to make estimates, judgments, and assumptions that affect the reported amounts of assets, liabilities, revenues, and expenses and the related disclosure of contingent assets and liabilities. On a regular basis, the Company evaluates its estimates, including those related to uncollectible receivables, the useful lives of long-lived assets including property and equipment, investment fair values, stock-based compensation, goodwill and other intangible assets, income taxes, contingencies, and restructuring charges. The Company bases its estimates of the carrying value of certain assets and liabilities on historical experience and on various other assumptions that are believed to be reasonable under the circumstances, when these carrying values are not readily available from other sources. Actual results may differ from these estimates.

These condensed consolidated financial statements should be read in conjunction with the consolidated financial statements and related notes included in the Company’s Annual Report on Form 10-K for the year ended December 31, 2009. Certain information and footnote disclosures normally included in financial statements prepared in accordance with U.S. GAAP have been condensed or omitted except for the Company’s change in revenue recognition policy pursuant to such rules and regulations. The condensed consolidated balance sheet as of December 31, 2009 was derived from the Company’s audited financial statements for the year ended December 31, 2009, but does not include all disclosures required by U.S. GAAP. However, the Company believes the disclosures are adequate to make the information presented not misleading.

Revenue Recognition. In October 2009, the Financial Accounting Standards Board (“FASB”) amended the accounting standard for multiple deliverable revenue arrangements, which provided updated guidance on whether multiple deliverables exist, how deliverables in an arrangement should be separated, and how consideration should be allocated. This standard eliminates the use of the residual method and will require arrangement consideration to be allocated based on the relative selling price for each deliverable. The selling price for each arrangement deliverable can be established based on vendor specific objective evidence (“VSOE”) and third-party evidence (“TPE”) if VSOE is not available. The new standard provides additional flexibility to utilize an estimate of selling price (“ESP”) if neither VSOE nor TPE is available.

The Company elected to early adopt this accounting standard on January 1, 2010 on a prospective basis for applicable transactions originating or materially modified after December 31, 2009. The adoption of this standard did not have a significant impact on the Company’s revenue recognition for multiple deliverable arrangements. Upon adoption, the selling prices for certain custom advertising solutions may use the best estimate of selling price as provided under the new standard. The adoption of this standard did not have a material impact on the Company’s consolidated financial position, cash flows, or results of operations for the three months ended March 31, 2010.

The Company’s revenues are derived principally from services, which comprise marketing services for advertisers and publishers and offerings to users. The Company classifies these revenues as marketing services and fees.

In all cases, revenue is recognized only when the price is fixed or determinable, persuasive evidence of an arrangement exists, the service is performed and collectability of the related fee is reasonably assured. The Company’s arrangements generally do not include a provision for cancellation, termination, or refunds that would significantly impact revenue recognition.

Marketing services revenues are generated from several offerings including the display of graphical advertisements (“display advertising”), the display of text-based links to an advertiser’s Website (“search advertising”), listing-based services, and commerce-based transactions.

The Company recognizes revenues from display advertising on Yahoo! Properties as “impressions” are delivered. An “impression” is delivered when an advertisement appears in pages viewed by users. Arrangements for these services generally have terms of up to one year and in some cases the terms may be up to three years.

The Company is beginning to offer customized display advertising solutions to advertisers. These customized display advertising solutions will combine the Company’s standard display advertising with customized content, customer insights, and campaign analysis. Due to the unique nature of these products, the Company may not be able to establish selling prices based on historical stand-alone sales or third party evidence, therefore the Company may use its best estimate to establish selling prices. The Company establishes best estimates within a range of selling prices considering multiple factors including, but not limited to factors such as class of advertiser, size of transaction, seasonality, margin objectives, observed pricing trends, available online inventory, industry pricing strategies, and market conditions. The Company believes the use of the best estimates of selling price will allow revenue recognition in a manner consistent with the underlying economics of the transaction.

The Company also recognizes revenues from search advertising, which are placed on Yahoo! Properties. Search advertising revenue is recognized as “click-throughs” occur. A “click-through” occurs when a user clicks on an advertiser’s search result listing.

Marketing services revenues also includes listings and transaction revenues. Listings revenues are generated from a variety of consumer and business listings-based services, including access to the Yahoo! HotJobs database and classified advertising such as Yahoo! Autos, Yahoo! Real Estate, and other services. The Company recognizes listings revenues when the services are performed. Transaction revenues are generated from facilitating commercial transactions through Yahoo! Properties, principally from Small Business, Yahoo! Travel and Yahoo! Shopping. The Company recognizes transaction revenues when there is evidence that qualifying transactions have occurred (for example, when travel arrangements are booked through Yahoo! Travel).

In addition to delivering search and display advertising on Yahoo! Properties, the Company also generates revenues from search and/or display advertising offerings on Affiliate sites. The Company pays Affiliates for the revenues generated from the display of these advertisements on the Affiliates’ Websites. These payments are called traffic acquisition costs (“TAC”). The revenues derived from these arrangements that involve traffic supplied by Affiliates are reported gross of the payment to Affiliates. These revenues are reported gross due to the fact that the Company is the primary obligor to the advertisers who are the customers of the advertising service.

Fees revenues consist of revenues generated from a variety of consumer and business fee-based services, including Internet broadband services, royalties received from joint venture partners, premium mail, music and personals offerings as well as services for small businesses. The Company recognizes fees revenues when the services are performed.

The Company accounts for cash consideration given to customers, for which it does not receive a separately identifiable benefit or cannot reasonably estimate fair value, as a reduction of revenue rather than as an expense. Cash consideration received in an arrangement with a provider may require consideration of classification of amounts received as revenue or a reimbursement of costs incurred. Additionally, the Company reports revenue for which it is the primary obligor in the arrangement and for which it provided a product or service at the gross amount.

Current deferred revenue is comprised of contractual billings in excess of recognized revenues and payments received in advance of revenue recognition. Long-term deferred revenue includes amounts received from customers for which services will not be delivered within the next 12 months.

BASIC AND DILUTED NET INCOME ATTRIBUTABLE TO YAHOO! INC. COMMON STOCKHOLDERS PER SHARE

3 Months Ended

Mar. 31, 2010

BASIC AND DILUTED NET INCOME ATTRIBUTABLE TO YAHOO! INC. COMMON STOCKHOLDERS PER SHARE

Note 2 BASIC AND DILUTED NET INCOME ATTRIBUTABLE TO YAHOO! INC. COMMON STOCKHOLDERS PER SHARE

Basic and diluted net income per share attributable to Yahoo! common stockholders is computed using the weighted average number of common shares outstanding during the period, excluding net income attributable to participating securities (restricted stock awards granted under the Company’s 1995 Stock Plan and restricted stock units granted under the 1996 Directors’ Stock Plan (the “Directors’ Plan”)). Diluted net income per share is computed using the weighted average number of common shares and, if dilutive, potential common shares outstanding during the period. Potential common shares are calculated using the treasury stock method and consist of unvested restricted stock and shares underlying unvested restricted stock units, the incremental common shares issuable upon the exercise of stock options, and shares to be purchased under the employee stock purchase plan. The Company calculates potential tax windfalls and shortfalls by including the impact of pro forma deferred tax assets.

The Company takes into account the effect on consolidated net income per share of dilutive securities of entities in which the Company holds equity interests that are accounted for using the equity method.

Potentially dilutive securities representing approximately 127 million shares of common stock for the three months ended March 31, 2009 and 86 million shares of common stock for the three months ended March 31, 2010 were excluded from the computation of diluted earnings per share for these periods because their effect would have been anti-dilutive.

The following table sets forth the computation of basic and diluted net income per share (in thousands, except per share amounts):


	Three Months Ended
	March 31, 2009			March 31, 2010
*Basic:*
Numerator:
Net income attributable to Yahoo! Inc.	$	117,558		$	310,191
Less: Net income allocated to participating securities		(154	)		(44	)

Net income attributable to Yahoo! Inc. common stockholders — basic	$	117,404		$	310,147


Denominator:
Weighted average common shares		1,391,526			1,398,308

Net income attributable to Yahoo! Inc. common stockholders per share — basic	$	0.08		$	0.22


*Diluted:*
Numerator:
Net income attributable to Yahoo! Inc.	$	117,558		$	310,191
Less: Net income allocated to participating securities		(4	)		(21	)
Less: Effect of dilutive securities issued by equity investees		(208	)		(696	)

Net income attributable to Yahoo! Inc. common stockholders — diluted	$	117,346		$	309,474


Denominator:
Denominator for basic calculation		1,391,526			1,398,308
Weighted average effect of Yahoo! dilutive securities:
Restricted stock and restricted stock units		10,179			7,483
Stock options and employee stock purchase plan		4,805			7,641

Denominator for diluted calculation		1,406,510			1,413,432

Net income attributable to Yahoo! Inc. common stockholders per share — diluted	$	0.08		$	0.22

INVESTMENTS IN EQUITY INTERESTS

3 Months Ended

Mar. 31, 2010

INVESTMENTS IN EQUITY INTERESTS

Note 3 INVESTMENTS IN EQUITY INTERESTS

The following table summarizes the Company’s investments in equity interests (dollars in thousands):


	December 31, 2009		March 31, 2010		Percent Ownership of Common Stock as of March 31, 2010
Alibaba Group	$	2,167,007	$	2,208,473	43	%
Yahoo Japan		1,329,281		1,374,656	35	%

Total	$	3,496,288	$	3,583,129

Equity Investment in Alibaba Group. The investment in Alibaba Group Holding Limited (“Alibaba Group”) is accounted for using the equity method, and the total investment, including net tangible assets, identifiable intangible assets and goodwill, is classified as part of investments in equity interests on the Company’s condensed consolidated balance sheets. The Company records its share of the results of Alibaba Group and any related amortization expense, one quarter in arrears, within earnings in equity interests in the condensed consolidated statements of income.

As of March 31, 2010, the difference between the Company’s carrying value of its investment in Alibaba Group and its proportionate share of Alibaba Group’s stockholders’ equity is summarized as follows (in thousands):


Carrying value of investment in Alibaba Group	$	2,208,473
Proportionate share of Alibaba Group stockholders’ equity		1,547,986

Excess of carrying value of investment over proportionate share of Alibaba Group’s stockholders’ equity^(*)	$	660,487

^(*)	The excess carrying value has been primarily assigned to goodwill.

The following table presents Alibaba Group’s U.S. GAAP condensed financial information, as derived from the Alibaba Group consolidated financial statements (in thousands):


	Three Months Ended
	December 31, 2008			December 31, 2009
Operating data:
Revenues	$	152,648		$	273,812
Gross profit	$	103,493		$	212,885
Loss from operations^(*)	$	(45,610	)	$	(169,123	)
Net loss	$	(51,004	)	$	(145,225	)
Net loss attributable to Alibaba Group	$	(59,088	)	$	(156,696	)

	September 30, 2009			December 31, 2009
Balance sheet data:
Current assets	$	3,191,097		$	3,525,652
Long-term assets	$	2,308,099		$	2,263,149
Current liabilities	$	1,559,975		$	1,937,937
Long-term liabilities	$	25,815		$	43,638
Noncontrolling interests	$	185,055		$	208,843

^(*)

The loss from operations of $169 million for the three months ended December 31, 2009 is primarily due to Alibaba Group’s impairment loss of $192 million on goodwill related to the business that Yahoo! contributed to Alibaba Group. This impairment does not impact Yahoo!’s earnings in equity interests as Yahoo!’s investment balance related to this contributed business was carried over at cost and therefore Yahoo! has no basis in the impaired goodwill.

The Company also has commercial arrangements with Alibaba Group to provide technical, development, and advertising services. For the three months ended March 31, 2009 and 2010, these transactions were not material.

Equity Investment in Yahoo Japan. The investment in Yahoo Japan Corporation (“Yahoo Japan”) is accounted for using the equity method, and the total investment, including net tangible assets, identifiable intangible assets and goodwill, is classified as part of investments in equity interests on the Company’s condensed consolidated balance sheets. The Company records its share of the results of Yahoo Japan and any related amortization expense, one quarter in arrears, within earnings in equity interests in the condensed consolidated statements of income. The fair value of the Company’s ownership interest in the common stock of Yahoo Japan, based on the quoted stock price, was approximately $7 billion as of March 31, 2010.

The following table presents Yahoo Japan’s condensed financial information, as derived from the Yahoo Japan consolidated financial statements (in thousands):


	Three Months Ended
	December 31, 2008		December 31, 2009
Operating data:
Revenues	$	778,647	$	893,895
Gross profit	$	657,978	$	733,937
Income from operations	$	344,305	$	405,660
Net income	$	200,516	$	233,927
Net income attributable to Yahoo Japan	$	198,709	$	232,246


	September 30, 2009		December 31, 2009
Balance sheet data:
Current assets	$	1,599,624	$	1,759,549
Long-term assets	$	2,395,863	$	2,318,384
Current liabilities	$	997,722	$	956,384
Long-term liabilities	$	3,556	$	3,187
Noncontrolling interests	$	26,662	$	26,355

The differences between U.S. GAAP and accounting principles generally accepted in Japan, the standards by which Yahoo Japan’s financial statements are prepared, did not materially impact the amounts reflected in the Company’s condensed consolidated financial statements.

Through its commercial arrangement with Yahoo Japan, the Company provides advertising and search marketing services to Yahoo Japan for a service fee. Under this arrangement, the Company records marketing services revenue from Yahoo Japan for the provision of search marketing services based on a percentage of advertising revenues earned by Yahoo Japan for the delivery of sponsored search results. In addition, the Company recognizes revenues from license fees received from Yahoo Japan. These arrangements resulted in revenues of approximately $75 million and $74 million for the three months ended March 31, 2009 and 2010, respectively. As of December 31, 2009 and March 31, 2010, the Company had a net receivable balance from Yahoo Japan of approximately $41 million and $39 million, respectively.

- Definition

Equity investment disclosure, or group of investments for which combined disclosure is appropriate, including: (a) the name of each investee and percentage of ownership of common stock, (b) accounting policies for investments in common stock, (c) difference between the amount at which the investment is carried and the amount of underlying equity in net assets and the accounting treatment of the difference, (d) the total fair value of each identified investment for which a market value is available, (e) summarized information as to assets, liabilities, and results of operations of the investees (for investments in unconsolidated subsidiaries, common stock of joint ventures, or other investments using the equity method), and (f) material effects of possible conversions, exercises, or contingent issuances of the investee. Other disclosures include (a) the names of any investee in which the investor owns 20 percent or more of the voting stock and investment is not accounted for using the equity method, and the reasons why not, and (b) the names of any investee in which the investor owns less than 20% of the voting stock and the investment is accounted for using the equity method, and the reasons why it is.

+ References+ Details

GOODWILL	3 Months Ended
GOODWILL	Mar. 31, 2010
GOODWILL	Note 4 GOODWILL The change in the carrying amount of goodwill for the three months ended March 31, 2010 was primarily due to foreign currency translation losses of $23 million and a reduction of $19 million related to the allocation of goodwill for the sale of Zimbra, Inc., an acquisition made by the Company in October 2007.

INTANGIBLE ASSETS, NET

3 Months Ended

Mar. 31, 2010

INTANGIBLE ASSETS, NET

Note 5 INTANGIBLE ASSETS, NET

The following table summarizes the Company’s intangible assets, net (in thousands):


	December 31, 2009		March 31, 2010
	Net		Gross Carrying Amount		Accumulated Amortization *^()**			Net
Customer and advertiser related relationships	$	83,232	$	128,284	$	(58,919	)	$	69,365
Developed technology and patents		239,285		422,336		(233,940	)		188,396
Trade names, trademarks, and domain names		33,366		76,628		(46,095	)		30,533

Total intangible assets, net	$	355,883	$	627,248	$	(338,954	)	$	288,294

^(*)	Foreign currency translation adjustments, reflecting movement in the currencies of the underlying entities, totaled approximately $15 million as of March 31, 2010.

For the three months ended March 31, 2009 and 2010, the Company recognized amortization expense for intangible assets of $47 million and $36 million, respectively, including $37 million in cost of revenues for the three months ended March 31, 2009 and $27 million in cost of revenues for the three months ended March 31, 2010. Based on the current amount of intangibles subject to amortization, the estimated amortization expense for the remainder of 2010 and each of the succeeding years is as follows: nine months ending December 31, 2010: $83 million; 2011: $87 million; 2012: $62 million; 2013: $25 million; 2014: $12 million; 2015: $2 million; and cumulatively thereafter: $2 million.

OTHER INCOME, NET

3 Months Ended

Mar. 31, 2010

OTHER INCOME, NET

Note 6 OTHER INCOME, NET

Other income, net is comprised of (in thousands):


	Three Months Ended
	March 31, 2009			March 31, 2010
Interest and investment income	$	6,848		$	6,343
Investment gains, net		90			447
Gain on sale of Zimbra, Inc.		—			66,130
Other		(1,978	)		13,408

Total other income, net	$	4,960		$	86,328

Interest and investment income consists of income earned from cash in bank accounts and investments made in marketable debt securities and money market funds.

Investment gains, net include gains/losses from sales of marketable debt securities and/or investments in privately held companies.

In February 2010, the Company sold Zimbra, Inc., an acquisition the Company made in October 2007, for net proceeds of $100 million. The Company recorded a pre-tax gain of $66 million.

Other consists of foreign exchange gains and losses due to re-measurement of monetary assets and liabilities denominated in non-functional currencies and other non-operating items.

COMPREHENSIVE INCOME

3 Months Ended

Mar. 31, 2010

COMPREHENSIVE INCOME

Note 7 COMPREHENSIVE INCOME

Comprehensive income, net of taxes, is comprised of (in thousands):


	Three Months Ended
	March 31, 2009			March 31, 2010
Net income	$	118,695		$	310,191
Change in net unrealized (losses) gains, net on available-for-sale securities, net of tax and reclassification adjustments		(328	)		1,046
Foreign currency translation adjustment		82,230			(59,230	)

Other comprehensive income (loss)		81,902			(58,184	)

Comprehensive income	$	200,597		$	252,007
Comprehensive income attributable to noncontrolling interests		(1,137	)		(2,088	)

Comprehensive income attributable to Yahoo! Inc.	$	199,460		$	249,919

The following table summarizes the components of accumulated other comprehensive income (in thousands):


	December 31, 2009		March 31, 2010
Unrealized gains on available-for-sale securities, net of tax	$	4,921	$	5,967
Foreign currency translation, net of tax		364,315		305,085

Accumulated other comprehensive income	$	369,236	$	311,052

- Definition

This label may include the following: 1) the amount of income tax expense or benefit allocated to each component of other comprehensive income, including reclassification adjustments, 2) the reclassification adjustments for each classification of other comprehensive income and 3) the ending accumulated balances for each component of comprehensive income. Components of comprehensive income include: (1) foreign currency translation adjustments; (2) gains and losses on foreign currency transactions that are designated as, and are effective as, economic hedges of a net investment in a foreign entity; (3) gains and losses on intercompany foreign currency transactions that are of a long-term-investment nature, when the entities to the transaction are consolidated, combined, or accounted for by the equity method in the reporting enterprise's financial statements; (4) change in the market value of a futures contract that qualifies as a hedge of an asset reported at fair value; (5) unrealized holding gains and losses on available-for-sale securities and that resulting from transfers of debt securities from the held-to-maturity category to the available-for-sale category; (6) a net loss recognized as an additional pension liability not yet recognized as net periodic pension cost; and (7) the net gain or loss and net prior service cost or credit for pension plans and other postretirement benefit plans.

+ References+ Details

INVESTMENTS

3 Months Ended

Mar. 31, 2010

INVESTMENTS

Note 8 INVESTMENTS

The following tables summarize the investments in available-for-sale securities (in thousands):


	December 31, 2009
	Gross Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Government and agency securities	$	1,781,674	$	868	$	(1,825	)	$	1,780,717
Municipal bonds		465,823		739		(3	)		466,559
Corporate debt securities, commercial paper, and bank certificates of deposit		995,291		1,305		(1,298	)		995,298
Corporate equity securities		2,597		—		—			2,597

Total investments in available-for-sale securities	$	3,245,385	$	2,912	$	(3,126	)	$	3,245,171


	March 31, 2010
	Gross Amortized Costs		Gross Unrealized Gains		Gross Unrealized Losses			Estimated Fair Value
U.S. Government and agency securities	$	1,610,216	$	1,239	$	(615	)	$	1,610,840
Municipal bonds		330,681		345		(4	)		331,022
Corporate debt securities, commercial paper, and bank certificates of deposit		969,641		1,947	$	(373	)		971,215
Corporate equity securities		1,331		—		—			1,331

Total investments in available-for-sale securities	$	2,911,869	$	3,531	$	(992	)	$	2,914,408

Reported as:


	December 31, 2009		March 31, 2010

Short-term marketable debt securities	$	2,015,655	$	1,911,423
Long-term marketable debt securities		1,226,919		1,001,654
Other assets		2,597		1,331

Total	$	3,245,171	$	2,914,408

Available-for-sale securities included in cash and cash equivalents on the condensed consolidated balance sheets are not included in the table above as the gross unrealized gains and losses were immaterial for both 2009 and the three months ended March 31, 2010 as the carrying value approximates fair value because of the short maturity of those instruments.

The contractual maturities of available-for-sale marketable debt securities were as follows (in thousands):


	December 31, 2009		March 31, 2010
Due within one year	$	2,015,655	$	1,911,423
Due after one year through five years		1,226,919		1,001,654

Total available-for-sale marketable debt securities	$	3,242,574	$	2,913,077

The following tables show all investments in an unrealized loss position for which an other-than-temporary impairment has not been recognized and the related gross unrealized losses and fair value, aggregated by investment category and length of time that individual securities have been in a continuous unrealized loss position (in thousands):


	December 31, 2009
	Less than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government and agency securities	$	886,657	$	(1,825	)	$	—	$	—	$	886,657	$	(1,825	)
Municipal bonds		8,760		(3	)		—		—		8,760		(3	)
Corporate debt securities and commercial paper		352,031		(1,298	)		—		—		352,031		(1,298	)

Total investments in available-for-sale securities	$	1,247,448	$	(3,126	)	$	—	$	—	$	1,247,448	$	(3,126	)


	March 31, 2010
	Less than 12 Months					12 Months or Greater				Total
	Fair Value		Unrealized Loss			Fair Value		Unrealized Loss		Fair Value		Unrealized Loss
U.S. Government and agency securities	$	693,191	$	(615	)	$	—	$	—	$	693,191	$	(615	)
Municipal bonds		11,272		(4	)		—		—		11,272		(4	)
Corporate debt securities and commercial paper		269,729		(373	)		—		—		269,729		(373	)

Total investments in available-for-sale securities	$	974,192	$	(992	)	$	—	$	—	$	974,192	$	(992	)

The Company’s investment portfolio consists of liquid high-quality fixed income government, agency, municipal, and corporate debt securities, money market funds, and time deposits with financial institutions. Investments in both fixed rate and floating rate interest earning instruments carry a degree of interest rate risk. Fixed rate securities may have their fair market value adversely impacted due to a rise in interest rates, while floating rate securities may produce less income than expected if interest rates fall. Fixed income securities may have their fair market value adversely impacted due to a deterioration of the credit quality of the issuer. The longer the term of the securities, the more susceptible they are to changes in market rates. Investments are reviewed periodically to identify possible other-than-temporary impairment. The Company has no current requirement or intent to sell these securities. The Company expects to recover up to (or beyond) the initial cost of investment for securities held.

The FASB’s authoritative guidance on fair value measurements establishes a framework for measuring fair value and requires disclosures about fair value measurements by establishing a hierarchy that prioritizes the inputs to valuation techniques used to measure fair value. The hierarchy gives the highest priority to unadjusted quoted prices in active markets for identical assets or liabilities (Level 1 measurements) and lowest priority to unobservable inputs (Level 3 measurements). The three levels of the fair value hierarchy are described below:

Basis of Fair Value Measurement


Level 1		Observable inputs that reflect quoted prices (unadjusted) for identical assets or liabilities in active markets.

Level 2		Inputs reflect quoted prices for identical assets or liabilities in markets that are not active; quoted prices for similar assets or liabilities in active markets; inputs other than quoted prices that are observable for the asset or the liability; or inputs that are derived principally from or corroborated by observable market data by correlation or other means.

Level 3		Unobservable inputs reflecting the Company’s own assumptions incorporated in valuation techniques used to determine fair value. These assumptions are required to be consistent with market participant assumptions that are reasonably available.

The following table sets forth the financial assets, measured at fair value, by level within the fair value hierarchy as of December 31, 2009 (in thousands):


	Fair Value Measurements at Reporting Date Using
Assets	Level 1		Level 2		Total
Money market funds⁽¹⁾	$	364,602	$	—	$	364,602
Available-for-sale securities:
U.S. Government and agency securities⁽¹⁾		—		1,938,608		1,938,608
Municipal bonds⁽¹⁾		—		470,031		470,031
Commercial paper and bank certificates of deposit⁽¹⁾		—		445,786		445,786
Corporate debt securities⁽¹⁾		—		641,104		641,104

Available-for-sale securities at fair value	$	364,602	$	3,495,529	$	3,860,131
Corporate equity securities⁽²⁾		2,597		—		2,597

Total assets at fair value	$	367,199	$	3,495,529	$	3,862,728

⁽¹⁾

The money market funds, U.S. Government and agency securities, municipal bonds, commercial paper and bank certificates of deposit, and corporate debt securities are classified as part of either cash and cash equivalents or investments in marketable debt securities in the condensed consolidated balance sheets.

⁽²⁾	The corporate equity securities are classified as part of other long-term assets in the condensed consolidated balance sheets.

The amount of cash and cash equivalents as of December 31, 2009 includes $658 million in cash deposited with commercial banks, of which $205 million are time deposits.

The following table sets forth the financial assets, measured at fair value, by level within the fair value hierarchy as of March 31, 2010 (in thousands):


	Fair Value Measurements at Reporting Date Using
Assets	Level 1		Level 2		Total
Money market funds⁽¹⁾	$	432,192	$	—	$	432,192
Available-for-sale securities:
U.S. Government and agency securities⁽¹⁾		—		1,691,239		1,691,239
Municipal bonds⁽¹⁾		—		331,023		331,023
Commercial paper and bank certificates of deposit⁽¹⁾		—		306,090		306,090
Corporate debt securities⁽¹⁾		—		732,520		732,520

Available-for-sale securities at fair value	$	432,192	$	3,060,872	$	3,493,064
Corporate equity securities⁽²⁾		1,331		—		1,331

Total assets at fair value	$	433,523	$	3,060,872	$	3,494,395

⁽¹⁾

⁽²⁾	The corporate equity securities are classified as part of other long-term assets in the condensed consolidated balance sheets.

The amount of cash and cash equivalents as of March 31, 2010 includes $751 million in cash deposited with commercial banks, of which $251 million are time deposits.

The fair values of the Company’s Level 1 financial assets are based on quoted market prices of the identical underlying security. The fair values of the Company’s Level 2 financial assets are obtained from readily-available pricing sources for the identical underlying security that may not be actively traded. The Company utilizes a pricing service to assist in obtaining fair value pricing for the majority of this investment portfolio. The Company conducts reviews on a quarterly basis to verify pricing, assess liquidity, and determine if significant inputs have changed that would impact the fair value hierarchy disclosure. During the quarter ended March 31, 2010, the Company did not make significant transfers between Level 1 and Level 2 assets. As of December 31, 2009 and March 31, 2010, the Company did not have any significant Level 3 financial assets.

- Definition

This item represents the entire disclosure related to Available-for-sale Securities which consist of all investments in certain debt and equity securities neither classified as trading or held-to-maturity securities. A debt security represents a creditor relationship with an enterprise. Debt securities include, among other items, US Treasury securities, US government securities, municipal securities, corporate bonds, convertible debt, commercial paper, and all securitized debt instruments. An equity security represents an ownership interest in an enterprise or the right to acquire or dispose of an ownership interest in an enterprise at fixed or determinable prices. Equity securities include, among other things, common stock, certain preferred stock, warrant rights, call options, and put options, but do not include convertible debt. An entity may opt to provide the reader with additional narrative text to better understand the nature of investments in debt and equity securities which are categorized as Available-for-sale.

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STOCK-BASED COMPENSATION

3 Months Ended

Mar. 31, 2010

STOCK-BASED COMPENSATION

Note 9 STOCK-BASED COMPENSATION

Employee Stock Purchase Plan. As of March 31, 2010, there was $12 million of unamortized stock-based compensation cost related to the Company’s employee stock purchase plan which is expected to be recognized over a weighted average period of 0.52 years.

Stock Options. The Company’s 1995 Stock Plan, the Directors’ Plan, and other stock-based award plans assumed through acquisitions are collectively referred to as the “Plans.” Stock option activity under the Company’s Plans for the three months ended March 31, 2010 is summarized as follows (in thousands, except per share amounts):


	Shares		Weighted Average Exercise Price per Share
Outstanding at December 31, 2009	119,593		$	25.74
Options granted	4,922		$	15.22
Options exercised^(*)	(1,237	)	$	10.41
Options expired	(4,366	)	$	50.67
Options cancelled/forfeited	(2,431	)	$	18.95

Outstanding at March 31, 2010	116,481		$	24.67

^(*)	The Company issued new shares to satisfy stock option exercises.

As of March 31, 2010, there was $181 million of unrecognized stock-based compensation cost related to unvested stock options which is expected to be recognized over a weighted average period of 2.2 years.

The Company determines the grant-date fair value of stock options, including the options granted under the Company’s employee stock purchase plan, using a Black-Scholes model, unless the options are subject to market conditions, in which case the Company uses a Monte Carlo simulation model. The Monte Carlo simulation model utilizes multiple input variables to estimate the probability that market conditions will be achieved. The following weighted average assumptions were used in determining the fair value of option grants using the Black-Scholes option pricing model:


	Stock Options				Purchase Plan
	Three Months Ended				Three Months Ended
	March 31, 2009		March 31, 2010		March 31, 2009		March 31, 2010
Expected dividend yield	0.0	%	0.0	%	0.0	%	0.0	%
Risk-free interest rate	1.7	%	2.2	%	2.4	%	2.3	%
Expected volatility	57.1	%	31.3	%	71.8	%	69.8	%
Expected life (in years)	4.00		4.50		0.72		0.52

Restricted stock awards and restricted stock units activity for the three months ended March 31, 2010 is summarized as follows (in thousands, except per share amounts):


	Shares		Weighted Average Grant Date Fair Value
Awarded and unvested at December 31, 2009^(*)	26,189		$	21.14
Granted^(*)	13,334		$	15.54
Vested	(4,993	)	$	20.56
Forfeited	(1,386	)	$	19.11

Awarded and unvested at March 31, 2010^(*)	33,144		$	19.06

^(*)	Includes the maximum number of shares issuable under the Company’s performance-based executive incentive restricted stock unit awards.

As of March 31, 2010, there was $292 million of unrecognized stock-based compensation cost related to unvested restricted stock awards and restricted stock units which is expected to be recognized over a weighted average period of 2.6 years.

During the three months ended March 31, 2010, 5.0 million shares subject to previously granted restricted stock awards and restricted stock units vested. A majority of these vested restricted stock awards and restricted stock units were net share settled. The Company withheld 1.9 million shares based upon the Company’s closing stock price on the vesting date to settle the employees’ minimum statutory obligation for the applicable income and other employment taxes. The Company then remitted cash to the appropriate taxing authorities.

Total payments for the employees’ tax obligations to the relevant taxing authorities were $30 million for the three months ended March 31, 2010 and are reflected as a financing activity within the condensed consolidated statements of cash flows. The payments were used for tax withholdings related to the net share settlements of restricted stock units and tax withholding-related reacquisition of shares of restricted stock.

During the three months ended March 31, 2009, 2.6 million shares subject to previously granted restricted stock awards and restricted stock units vested. A majority of these vested restricted stock awards and restricted stock units were net share settled. The Company withheld 0.9 million shares based upon the Company’s closing stock price on the vesting date to settle the employees’ minimum statutory obligation for the applicable income and other employment taxes. The Company then remitted cash to the appropriate taxing authorities.

Total payments for the employees’ tax obligations to the relevant taxing authorities were $10 million for the three months ended March 31, 2009 and are reflected as a financing activity within the condensed consolidated statements of cash flows. The payments were used for tax withholdings related to the net share settlements of restricted stock units and tax withholding-related reacquisition of shares of restricted stock.

Performance-Based Executive Incentive Restricted Stock Units. In February 2009, the Compensation Committee approved long-term performance-based incentive equity awards to Ms. Bartz and other senior officers, including two types of restricted stock units that vest based on the Company’s achievement of certain performance goals. For both types of restricted stock units, the number of shares which ultimately vest will range from 0 percent to 200 percent of the target amount stated in each executive’s award agreement based on the performance of the Company relative to the applicable performance target. The first type of restricted stock unit generally will vest on the third anniversary of the grant date based on the Company’s attainment of certain annual financial performance targets as well as the executive’s continued employment through that vesting date. The annual financial performance targets are established at the beginning of each fiscal year and so for accounting purposes, the portion of the award subject to each annual target is treated as a separate annual grant. The fair value of each of the 2009 tranche and the 2010 tranche of the February 2009 annual financial performance grants was $3 million. Based on the Company’s relative attainment of the 2009 performance target, 75 percent of the target amount of the 2009 tranche shares will vest, provided each executive remains employed through the third anniversary of the grant date. For accounting purposes, the 2009 tranche will vest over a three-year service period and the 2010 tranche will vest over a two-year service period. The second type of restricted stock unit generally will vest following the third anniversary of the grant date based on the Company’s attainment of certain levels of total stockholder return relative to the returns for the NASDAQ 100 Index companies as well as the executive’s continued employment through that vesting date. The fair value of these restricted stock units is $13 million and is being recognized over a three-year service period.

Separately in February 2010, the Compensation Committee approved long-term performance-based incentive equity awards to Ms. Bartz and other senior officers, including two types of restricted stock units that vest based on the Company’s achievement of certain performance goals. For both types of restricted stock units, the number of shares which ultimately vest will range from 0 percent to 200 percent of the target amount stated in each executive’s award agreement based on the performance of the Company relative to the applicable performance target. The first type of restricted stock unit generally will vest on the third anniversary of the grant date based on the Company’s attainment of certain annual financial performance targets as well as the executive’s continued employment through that vesting date. The annual financial performance targets are established at the beginning of each fiscal year and so for accounting purposes, the portion of the award subject to each annual target is treated as a separate annual grant. The amount of stock-based compensation recorded for the first type of restricted stock unit will vary depending on the Company’s attainment of annual financial performance targets and the completion of the service period. The fair value of these restricted stock units is $4 million and is being recognized over a three-year service period. The second type of restricted stock unit generally will vest following the third anniversary of the grant date based on the Company’s attainment of certain levels of total stockholder return relative to the returns for the NASDAQ 100 Index companies as well as the executive’s continued employment through that vesting date. The fair value of these restricted stock units is $15 million and is being recognized over a three-year service period.

Stock Repurchases. During the three months ended March 31, 2010, the Company repurchased approximately 24.8 million shares of its common stock under the current stock repurchase program at an average price of $15.54 per share for a total of $385 million.

COMMITMENTS AND CONTINGENCIES

3 Months Ended

Mar. 31, 2010

COMMITMENTS AND CONTINGENCIES

Note 10 COMMITMENTS AND CONTINGENCIES

Lease Commitments. The Company leases office space and data centers under operating lease and capital lease agreements with original lease periods of up to 16 years, expiring between 2010 and 2026.

During the first quarter of 2010, the Company entered into a purchase agreement to acquire for $73 million certain office space that was being occupied by the Company under an operating lease. Accordingly, the operating lease was re-classified to a capital lease and the Company recorded $73 million as a capital lease obligation in its condensed consolidated balance sheets. The transaction is expected to close in the second quarter of 2010.

A summary of gross and net lease commitments as of March 31, 2010 is as follows (in millions):


	Gross Operating Lease Commitments		Sublease Income			Net Operating Lease Commitments
Nine months ending December 31, 2010	$	117	$	(4	)	$	113
Years ending December 31,
2011		139		(4	)		135
2012		110		(2	)		108
2013		92		(2	)		90
2014		79		(1	)		78
2015		67		(1	)		66
Due after 5 years		69		—			69

Total gross and net lease commitments	$	673	$	(14	)	$	659


	Capital Lease Commitment
Nine months ending December 31, 2010	$	16
Years ending December 31,
2011		12
2012		13
2013		13
2014		14
2015		14
Due after 5 years		111

Gross lease commitment	$	193

Less: interest		(79	)

Net lease commitment	$	114

Affiliate Commitments. In connection with contracts to provide advertising services to Affiliates, the Company is obligated to make payments, which represent traffic acquisition costs (“TAC”), to its Affiliates. As of March 31, 2010, these commitments totaled $119 million, of which $95 million will be payable in the remainder of 2010 and $24 million will be payable in 2011.

Intellectual Property Rights. The Company is committed to make certain payments under various intellectual property arrangements of up to $44 million through 2023.

Other Commitments. In the ordinary course of business, the Company may provide indemnifications of varying scope and terms to customers, vendors, lessors, joint ventures and business partners, purchasers of assets or subsidiaries and other parties with respect to certain matters, including, but not limited to, losses arising out of the Company’s breach of agreements or representations and warranties made by the Company, services to be provided by the Company, intellectual property infringement claims made by third parties or, with respect to the sale of assets or a subsidiary, matters related to the Company’s conduct of the business and tax matters prior to the sale. In addition, the Company has entered into indemnification agreements with its directors and certain of its officers that will require the Company, among other things, to indemnify them against certain liabilities that may arise by reason of their status or service as directors or officers. The Company has also agreed to indemnify certain former officers, directors, and employees of acquired companies in connection with the acquisition of such companies. The Company maintains director and officer insurance, which may cover certain liabilities arising from its obligation to indemnify its directors and officers, and former directors and officers of acquired companies, in certain circumstances. It is not possible to determine the aggregate maximum potential loss under these indemnification agreements due to the limited history of prior indemnification claims and the unique facts and circumstances involved in each particular agreement. Such indemnification agreements might not be subject to maximum loss clauses. Historically, the Company has not incurred material costs as a result of obligations under these agreements and it has not accrued any liabilities related to such indemnification obligations in its condensed consolidated financial statements.

Contingencies. From time to time, third parties assert patent infringement claims against Yahoo!. Currently, the Company is engaged in lawsuits regarding patent issues and has been notified of other potential patent disputes. In addition, from time to time, the Company is subject to other legal proceedings and claims in the ordinary course of business, including claims of alleged infringement of trademarks, copyrights, trade secrets, and other intellectual property rights, claims related to employment matters, and a variety of other claims, including claims alleging defamation, invasion of privacy, or similar claims arising in connection with the Company’s e-mail, message boards, photo and video sites, auction sites, shopping services, and other communications and community features.

On July 12, 2001, the first of several purported securities class action lawsuits was filed in the U.S. District Court for the Southern District of New York against certain underwriters involved in Overture Services Inc.’s (“Overture”) IPO, Overture, and certain of Overture’s former officers and directors. The Court consolidated the cases against Overture. Plaintiffs allege, among other things, violations of the Securities Act of 1933 and the Securities Exchange Act of 1934 (the “Exchange Act”) involving undisclosed compensation to the underwriters, and improper practices by the underwriters, and seek unspecified damages. Similar complaints were filed in the same court against numerous public companies that conducted IPOs of their common stock since the mid-1990s. All of these lawsuits were consolidated for pretrial purposes before Judge Shira Scheindlin. On April 1, 2009, the parties filed a motion with the Court for preliminary approval of a stipulated global settlement. On October 5, 2009, the Court granted class certification and granted final approval of the settlement and plan of allocation. Notices of appeal have been filed with the U.S. Court of Appeals for the Second Circuit.

On June 14, 2007, a stockholder derivative action was filed in the U.S. District Court for the Central District of California by Jill Watkins against members of the Board and selected officers. The complaint filed by the plaintiff alleged breaches of fiduciary duties and corporate waste, similar to the allegations in the former Brodsky/Hacker class action litigation relating to stock declines during the period April 2004 to July 2006, and alleged violation of Section 10(b) of the Exchange Act. On July 16, 2009, the plaintiff Watkins voluntarily dismissed the action against all defendants without prejudice. On July 17, 2009, plaintiff Miguel Leyte-Vidal, who had previously substituted in as plaintiff prior to the dismissal of the federal Watkins action, re-filed a shareholder derivative action in Santa Clara County Superior Court against members of the Board and selected officers. The Santa Clara County Superior Court derivative action purports to assert causes of action on behalf of the Company for violation of specified provisions of the California Corporations Code, for breaches of fiduciary duty regarding financial accounting and insider selling and for unjust enrichment.

Plaintiff Congregation Beth Aaron voluntarily dismissed an action filed in Santa Clara County Superior Court and on December 3, 2008 re-filed in the U.S. District Court for the Northern District of California alleging claims for breach of fiduciary duty and corporate waste in connection with Yahoo!’s consideration of proposals by Microsoft Corporation to purchase all or a part of Yahoo! in 2008, adoption of severance plans, and the June 12, 2008 agreement between Google Inc. and Yahoo!. Plaintiff filed an amended complaint on February 20, 2009. The complaint also alleges claims under Section 14(a) of the Exchange Act for alleged false statements or omissions in Yahoo!’s June 9, 2008 proxy statement regarding the severance plans and for control person liability under Section 20(a) of the Exchange Act, and also alleges that the defendants’ decision to settle similar Microsoft-related Delaware lawsuits constituted an independent breach of fiduciary duty. The complaint seeks unspecified compensatory damages, injunctive relief, and an award of plaintiffs’ attorneys’ fees and costs. On June 15, 2009, the Court granted defendants’ motion to dismiss all of Congregation Beth Aaron’s claims without leave to amend, which the Congregation has since appealed to the U.S. Court of Appeals for the Ninth Circuit.

While the outcome of the unsettled matters is currently not determinable, the Company does not believe, based on current knowledge, that any of the foregoing legal proceedings or claims is likely to have a material adverse effect on its financial position, results of operations, or cash flows. In the event of a determination adverse to Yahoo!, its subsidiaries, directors, or officers, in these matters, however, the Company may incur substantial monetary liability, and be required to change its business practices. Either of these could have a material adverse effect on the Company’s financial position, results of operations, or cash flows. The Company may also incur substantial expenses in defending against these claims.

SEGMENTS

3 Months Ended

Mar. 31, 2010

SEGMENTS

Note 11 SEGMENTS

The Company manages its business geographically. Through the first quarter of 2010, the primary areas of measurement and decision-making are the U.S. and International. In the Company’s Annual Report on Form 10-K for the year ended December 31, 2009, the segment profitability measure reported by the Company was segment operating income before depreciation, amortization, and stock-based compensation expense. Management no longer uses this measure to evaluate the operational performance of the Company’s segments. Beginning in the first quarter of 2010, management relies on an internal reporting process that provides revenues and direct costs by segment and consolidated income from operations for making decisions related to the evaluation of financial performance and allocating resources. Prior periods have been updated to conform to the measures currently being used by management to evaluate the operational performance of the Company’s segments.

Beginning in the second quarter of 2010, the business management structure will be redefined along three geographies: Americas, Asia Pacific, and EMEA (Europe, Middle East, and Africa), and as the Company’s internal reporting is aligned to the new structure, segment reporting will be updated accordingly.

The following tables present summarized information by segment (in thousands):


	Three Months Ended
	March 31, 2009		March 31, 2010
Revenues by segment:
United States	$	1,187,930	$	1,120,664
International		392,112		476,296

Total revenues		1,580,042		1,596,960

Direct costs by segment⁽¹⁾:
United States		437,500		413,434
International		205,661		263,240
Global operating costs⁽²⁾		523,102		501,824
Restructuring charges, net		4,801		4,412
Depreciation and amortization		181,573		165,246
Stock-based compensation expense		126,720		60,783

Income from operations	$	100,685		188,021


Capital expenditures, net:
United States	$	57,365	$	92,716
International		13,116		19,825

Total capital expenditures, net	$	70,481	$	112,541


	December 31, 2009		March 31, 2010
Property and equipment, net:
United States	$	1,310,677	$	1,354,022
International		116,185		115,962

Total property and equipment, net	$	1,426,862	$	1,469,984

⁽¹⁾	Direct costs for each segment include TAC, other cost of revenues, and other operating expenses that are directly attributable to the segment such as employee compensation expense, local sales and marketing expenses, and facilities expenses.

⁽²⁾	Global operating costs include product development, service engineering and operations, marketing, customer advocacy, general and administrative, and other corporate expenses that are managed on a global basis and that are not directly attributable to any segment.

The following table presents revenues for groups of similar services (in thousands):


	Three Months Ended
	March 31, 2009		March 31, 2010
Marketing services:
Owned and Operated sites	$	871,764	$	874,820
Affiliate sites		511,417		547,698

Marketing services		1,383,181		1,422,518
Fees		196,861		174,442

Total revenues	$	1,580,042	$	1,596,960

INCOME TAXES

3 Months Ended

Mar. 31, 2010

INCOME TAXES

Note 12 INCOME TAXES

The effective tax rate for the three months ended March 31, 2010 was 18 percent, compared to 34 percent for the same period in 2009. The Company’s U.S. federal and California income tax returns for the years ended December 31, 2005 and 2006 are currently under examination by the Internal Revenue Service (“IRS”) and the California Franchise Tax Board. During the quarter, the Company reached an agreement with the IRS in connection with several adjustments to its tax returns, with a favorable outcome on certain of the Company’s reserves for tax uncertainties. As a result, the effective tax rate for the three months ended March 31, 2010 differs from the statutory federal income tax rate of 35 percent due to the reduction of the Company’s reserves for tax uncertainties and the usage of loss carryforwards to offset the tax on the gain on the sale of Zimbra, Inc. In addition to those recognized benefits, the effective tax rate differs from the statutory rate as a result of several factors, including state taxes, the effect of non-U.S. operations, and non-deductible stock-based compensation expense. The effective tax rate for the three months ended March 31, 2010 was lower than the rate for the same period in 2009, as a result of the same factors.

As discussed above, during the quarter, the Company reached an agreement with the IRS in connection with several adjustments to its tax returns, and the Company adjusted its reserves accordingly. In addition, the IRS has given the Company notice of other proposed adjustments, including an intercompany transfer pricing adjustment that if not favorably settled with the IRS could have a significant impact on the Company’s tax liability. The Company has not agreed to these proposed adjustments and currently believes that its existing reserves are adequate.

The Company’s gross amount of unrecognized tax benefits as of March 31, 2010 is $776 million, of which $443 million is recorded on the condensed consolidated balance sheets. As discussed above, in the first quarter of 2010 the Company reached an agreement with the IRS in connection with several adjustments to prior years’ tax returns and this agreement resulted in a reduction to the Company’s gross unrecognized tax benefit of $146 million. Of this $146 million reduction in unrecognized tax benefits, $81 million resulted in an effective tax rate benefit during the first quarter. These reductions to the gross unrecognized tax benefits have been offset by current year tax positions that increase unrecognized tax benefits. In total, the gross unrecognized tax benefits as of March 31, 2010 decreased by $117 million from the recorded balance as of December 31, 2009.

RESTRUCTURING CHARGES, NET

3 Months Ended

Mar. 31, 2010

RESTRUCTURING CHARGES, NET

Note 13 RESTRUCTURING CHARGES, NET

Restructuring charges, net was comprised of the following (in thousands):


	Three Months Ended
	March 31, 2009		March 31, 2010
Employee severance pay and related costs	$	1,809	$	258
Non-cancelable lease, contract termination, and other charges		2,992		4,154

Restructuring charges, net	$	4,801	$	4,412

Q4’08 Restructuring Plan. During the fourth quarter of 2008, the Company implemented certain cost reduction initiatives, including a workforce reduction and consolidation of certain real estate facilities in the U.S. and internationally. During the three months ended March 31, 2009, the Company incurred total pre-tax cash charges of approximately $5 million in severance, facility, and other restructuring costs related to the Q4’08 restructuring plan, consisting of $6 million in charges related to the U.S. segment offset by a $1 million reversal related to the International segment. During the three months ended March 31, 2010, the Company incurred total pre-tax cash charges of approximately $4 million in facility and other restructuring costs related to the Q4’08 restructuring plan, consisting of $5 million in charges related to the U.S. segment, offset by a $1 million reversal related to the International segment.

Q2’09 Restructuring Plan. During the second quarter of 2009, the Company implemented new cost reduction initiatives to further reduce the Company’s worldwide workforce by approximately 5 percent. During the three months ended March 31, 2010, the Company did not incur any charges related to the Q2’09 restructuring plan.

Q4’09 Restructuring Charges. During the fourth quarter of 2009, the Company decided to close one of its international facilities and began implementation of a workforce realignment at the facility to focus resources on its strategic initiatives. The Company plans to exit the facility in the third quarter of 2010. In connection with the strategic realignment efforts, an executive of one of the Company’s acquired businesses departed. During the three months ended March 31, 2010, the Company incurred total pre-tax cash charges of less than $1 million in severance and other related costs related to the Q4’09 restructuring charges, consisting of charges related to the International segment.

Restructuring Accruals. As of March 31, 2009 and 2010, the aggregate outstanding restructuring liability related to the cost reduction initiatives was $37 million and $72 million, respectively. Of the $72 million restructuring liability as of March 31, 2010, $17 million relates to employee severance pay expenses which the Company expects to substantially pay out by the end of the third quarter of 2010, and $55 million relates to non-cancelable lease costs which the Company expects to pay over the terms of the related obligations, which extend to the second quarter of 2017.

The Company’s restructuring accrual activity for the quarter ended March 31, 2009 is summarized as follows (in thousands):


	Q4’08 Restructuring Plan
Balance as of January 1, 2009	$	89,887


Employee severance pay and related costs		3,547
Non-cancelable lease, contract termination, and other charges		4,062
Reversal of previous charges		(2,808	)

Restructuring charges, net for the quarter ended March 31, 2009	$	4,801
Cash paid		(58,010	)
Non-cash adjustments		277

Balance as of March 31, 2009	$	36,955

The Company’s restructuring accrual activity for the quarter ended March 31, 2010 is summarized as follows (in thousands):


	Q4’08 Restructuring Plan			Q2’09 Restructuring Plan			Q4’09 Restructuring Charges			Total
Balance as of January 1, 2010	$	59,965		$	4,302		$	14,765		$	79,032

Employee severance pay and related costs		183			17			431			631
Non-cancelable lease, contract termination, and other charges		5,251			—			—			5,251
Reversal of previous charges		(1,097	)		(373	)		—			(1,470	)

Restructuring charges, net for the quarter ended March 31, 2010	$	4,337		$	(356	)	$	431		$	4,412
Cash paid		(9,140	)		(531	)		(1,181	)		(10,852	)
Non-cash adjustments		162			(350	)		(685	)		(873	)

Balance as of March 31, 2010	$	55,324		$	3,065		$	13,330		$	71,719

Restructuring accruals by segment consisted of the following (in thousands):


	December 31, 2009		March 31, 2010
United States	$	52,802	$	50,247
International		26,230		21,472

Total restructuring accruals	$	79,032	$	71,719

SEARCH AGREEMENT WITH MICROSOFT CORPORATION

3 Months Ended

Mar. 31, 2010

SEARCH AGREEMENT WITH MICROSOFT CORPORATION

Note 14 SEARCH AGREEMENT WITH MICROSOFT CORPORATION

On December 4, 2009, the Company entered into a Search and Advertising Services and Sales Agreement (“Search Agreement”) with Microsoft Corporation (“Microsoft”) under which Microsoft will be its exclusive platform technology provider for algorithmic and paid search services and non-exclusive provider for contextual advertising. The Company also entered into a License Agreement with Microsoft. Under the License Agreement, Microsoft acquired an exclusive 10-year license to the Company’s core search technology and will have the ability to integrate this technology into its existing Web search platforms. The Company received regulatory clearance from both the U.S. Department of Justice and the European Commission on February 18, 2010 and commenced implementation of the Search Agreement on February 23, 2010. Under the Search Agreement, the Company will be the exclusive worldwide relationship sales force for both companies’ premium search advertisers, which include advertisers meeting certain spending or other criteria, advertising agencies that specialize in or offer search engine marketing services and their clients, and resellers and their clients seeking assistance with their paid search accounts. The term of the Search Agreement is 10 years from February 23, 2010, subject to earlier termination as provided in the Search Agreement.

During the first five years of the term of the Search Agreement, the Company will be entitled to receive 88 percent of the net revenues generated from Microsoft’s services on Yahoo! Properties (the “Revenue Share Rate”) and it will also be entitled to receive its share (at the Revenue Share Rate) of the net revenues generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of net revenues is deducted. For new Affiliates during the term of the Search Agreement, and for all Affiliates after the first five years of such term, the Company will receive its share (at the Revenue Share Rate) of the net revenues generated from Microsoft’s services on Affiliate sites after the Affiliate’s share of net revenues and certain Microsoft costs are deducted. On the fifth anniversary of the date of implementation of the Search Agreement, Microsoft will have the option to terminate the Company’s sales exclusivity for premium search advertisers. If Microsoft exercises its option, the Revenue Share Rate will increase to 93 percent for the remainder of the term of the Search Agreement, unless the Company exercises its option to retain the Company’s sales exclusivity, in which case the Revenue Share Rate would be reduced to 83 percent for the remainder of the term. If Microsoft does not exercise such option, the Revenue Share Rate will be 90 percent for the remainder of the term of the Search Agreement.

Microsoft has agreed to reimburse the Company for certain transition costs up to an aggregate total of $150 million during the first three years of the Search Agreement. From February 23, 2010 until the applicable services are fully transitioned to Microsoft, Microsoft will also reimburse the Company for the costs of running its algorithmic and paid search services subject to specified exclusions and limitations. These search operating cost reimbursements and certain employee retention costs are separate from and in addition to the $150 million of transition cost reimbursement payments.

The global transition of the Company’s algorithmic and paid search platforms to Microsoft and migration of its paid search advertisers and publishers is expected to take up to 24 months and will be done on a market by market basis. The Company began reflecting reimbursements from Microsoft for transition costs and the cost of running its algorithmic and paid search services during the quarter ended March 31, 2010. The Company expects search revenue sharing with Microsoft under the Search Agreement to begin in late 2010 and increase in 2011 and 2012 as it migrates its paid search advertisers and publishers to Microsoft’s platforms by market. Based on the Company’s current levels of revenue and operating expenses, it expects the Search Agreement, when fully implemented, to have a positive impact on its operating income and to result in capital expenditures savings.

The Company’s operating expenses for the three months ended March 31, 2010 reflect cost reimbursements from Microsoft of $43 million for transition costs incurred in 2009, $24 million for transition costs incurred in the first quarter of 2010, $35 million for search operating costs incurred in the first quarter of 2010, and $15 million for employee retention costs incurred in the first quarter of 2010. The Company accrues for the reimbursements as costs are incurred and applies them against the operating expense categories in which the costs were incurred. As of March 31, 2010, the total reimbursements to be received from Microsoft of $122 million (including $5 million of reimbursements for employee retention costs incurred in 2009) were classified as part of prepaid expenses and other current assets on the Company’s condensed consolidated balance sheets. These reimbursements were subsequently received.